Fundamentals of Business

Types of shares

A company may have many different types of shares that come with different conditions and rights.
There are four main types of shares:
. Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up.
. Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category have a fixed value, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary shareholders.
. Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preferred shares must be paid, despite the earning levels of the business.
. Redeemable shares come with an agreement that the company can buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares.

How are shares issued?

When you set up a company, whether limited or unlimited, you can decide on the level of share capital - the company's authorised capital - and its division into fixed priced shares.
To set this up, draw up a Memorandum of Association.
This sets out:
the amount of share capital the company will have the division of the share capital The founders of the company sign the memorandum and state the number of shares they want. These are then issued upon incorporation. The money paid for the shares - which can be the nominal value or more - must be retained by the company.

Issued capital a company need not issue all its capital at once. Issued capital is the nominal - rather than actual - value of the part of the authorised share capital that has been issued to shareholders. A company with an authorised capital of 1,000 shares at £1.00, which issues 500 shares, has an issued share capital of £500. Public limited companies must have at least £50,000 of issued share capital. At least a quarter of this, plus any premium from selling the shares at a higher price must be paid up before the company can start trading. Any un-issued shares can be issued later by the directors, subject to the rules set out in the Articles of Association, but typically through an ordinary resolution. The company sets the price of these shares.

Example of actual shares
Extracts from Unilever·com
Our shares the basics Unilever NV ordinary shares (ISIN NL0000388619) and
depositary receipts of ordinary shares (ISIN NL0000009355) are listed on Euronext Amsterdam and as New York registry shares (CUSIP 904784709) on the New York Stock Exchange. The ordinary shares, the depositary receipts of ordinary shares and the New York registry shares are exchangeable on 1:1. Unilever PLC ordinary shares (ISIN GB00B10RZP78) are listed on the London Stock Exchange and as American Depositary Receipts (CUSIP 904767704) on the New York Stock Exchange. Each ADR represents 1 underlying ordinary PLC share. There are 1 714 727 700 NV ordinary shares in issue, each having a nominal value of €0.16. There are 1 310 156 361 PLC ordinary shares in issue, each having a nominal value of 3 1/9 pence.